Recent amendments in real estate taxes

• Goods and Services Tax (GST)
• ||
• May 24, 2019

Starting a real estate business isn’t for the faint of heart now. GST (Goods and service tax) announcements favors the developer community by making it flexible choosing between old GST rates with Input tax credit (ITC) or the new reduced GST rates of 5 % without ITC. The new tax structures for real estates solved the transition issues on ITC for the ongoing projects and provided a relief for developers. The 33^rd GST council meeting recommended a much needed breather to real estate sector which is beneficial for builders / developers as well as the customers. These changes will be in effect from April 1, 2019.

Certain changes are made in GST rates for real estate:
Following are the certain recommendations for GST rates:

1. Under construction properties or ready-to-move-in flats where completion certificate has not been issued at the time of sale from 12% (with ITC) to 5% (without ITC).
2. Affordable house i.e. a residential house upto 90 sqm. in non- metropolitan cities and 60 sqm. in metropolitan cities having a value of INR 45 Lakhs from 8% (with ITC) to 1% (without ITC).

The proposed amendments shall not apply to:

1. Non- affordable housing projects
2. Commercial projects

In case of partial commercial and partly residential projects, the rate of 12% and 5% to unit based on its commercial or residential nature shall apply.

Conditions for new tax rates

1. Minimum 80% of the material should be procured from registered dealers. On shortfall, taxes shall be paid by the builder @ 18% on RCM (Reverse Charge Mechanism) basis.
2. Tax on cement purchased from unauthorized person shall be paid @ 28% and on capital goods at the applicable rates.
3. ITC shall not be available.

Amendments benefiting the economy:
Below are the advantages stating our economy being benefitted by these certain amendments:

1. Buyers of the house will get a fair price and GST @1 % will make affordable housing very attractive.
2. Buyer’s interest will be protected. ITC benefits not being passed shall become a non- issue.
3. Exemption of GST on development rights, long term lease, FSI (Foreign source income) shall address cash flow problem of the sector
4. Unutilized ITC will be removed which will lead to better pricing.
5. Simpler tax structure and tax compliance is an additional benefit for the builders.

Treatment for TDS (Tax deducted at source) / FSI / and long term lease for projects
TDS, FSI, long term lease of land by a landowner to a developer exempted with a condition that constructed flats are sold before issuance of complete certificate and tax is paid on them.

Withdrawal of exemption limit of 1% to value in case of affordable houses and 5% of value in case of other than affordable house. Builders shall also be liable to pay tax on TDS, FSI, and long term lease on the date of issuance of complete certificate.

The wait and watch period in respect of GST for both the industry and the consumers is now over. These amendments lead to a growth of about 15 % on an year in new supply and 13% year-on-year in sales. The residential market is better placed this year as speculation-led investment activity has reduced
significantly and financial checks are in place to prevent over-gearing.

If you are looking forward for more updates about real estate GST amendment or require assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

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